Liquidity

Liquidity describes the ease with which assets - shares, bonds, etc. may be converted into cash immediately.

Heavily traded shares e.g those in the FTSE 100 are said to be highly liquid, meaning there's a lot of activity in them. This means that at any moment there's likely to be somebody who'll be buying and someone who'll be selling.

Heavily traded shares make 'liquid' markets. This almost certainly means there'll be competition among market makers when it comes to trading these shares. Such competition will tend to narrow the margins of the market makers thereby offering the investor a keener deal.

In an environment where shares are hardly traded, the market is said to be illiquid.

See Also: Online share dealing service Stockmarket Centre

Last Updated: November 2007 © Moneyextra.com

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